US steel markets
In the previous article, we noted that although the near-term outlook for US steel demand looks positive, rising interest rates might take a toll on steel demand from the construction and automotive sectors in the medium to long term. Along with demand, we also need to look at the supply side of the equation.
Section 232 tariffs
US steel production has picked up the pace after the implementation of President Trump’s Section 232 tariffs. We could see production rise further as U.S. Steel Corporation (X) ramps up production at its Granite City facility. The company also expects its production capacity to increase by ~1.0 million metric tons after it completes its asset revitalization plan.
Companies like Nucor (NUE) and Steel Dynamics (STLD) are adding new capacity that could lead to more domestic supply and help in import replacement. While domestic supply is expected to rise in the next few years, the demand growth might not keep pace.
US steel markets (XME) are eventually expected to balance as more domestic production could help bring down US steel prices. As the Trump administration sorts out the Section 232 tariffs and exemptions, we could see the spreads between US and international steel prices narrow to more reasonable levels.
Although US steel prices might have peaked, they might not fall off a cliff and could eventually settle at a higher plateau. While the peak steel pricing sentiment looks real, markets might be ignoring the structural shift from the Section 232 tariffs. We’ll discuss this aspect in the next article.